congress will "solve" mortgage problems by creating credit crunch

[jk]

http://www.minyanville.com/articles/index.php?a=12562



1. Real Estate Woes Contained to Congress
According to an article on Bloomberg this morning, it appears the housing woes are going to be successfully contained to Congress... which will then ensure the woes are magnified and ultimately spread out evenly to infect all areas of our lives.

• Although it has yet to get much play in the media for what it really means, an important housing-related article was on Bloomberg this morning.
• U.S. lawmakers want to stem the rising number of mortgage delinquencies (good for votes) by targeting investors who finance mortgage lending through mortgage backed securities.
• Bloomberg says the top Republican and Democrat (God help us when bipartisanship rears its ugly head) want to write new laws making investors who buy mortgage bonds liable for deceptive or bad loans.
• That all sounds well and good on the surface; place the burden for bad loans on the investors who are responsible for facilitating the lending practices in the first place.
• And check out this vote-winning sound bite:
  - "More money was being lent than should have been lent," said Committee Chairman Barney Frank (D- MA), who added that growth in the market for mortgage bonds "provided liquidity without responsibility."
• Ho ho ho! "Liquidity without responsibility!"
• That's a real kick in the crotch coming from a congressman of either party.

2. But Congress Woes Spreading to All Areas of American Life
So, while Congress is busy "containing housing woes," we'we'll tell you what this rush to legislate really means.

• It means that ultimately Congress is going to "save" the current crop of "homeowners" from themselves by raising the cost of borrowing for everybody else.
• Mortgages are going to be far more difficult to obtain for everyone.
• And because the new laws are going to make it far more risky for investors to facilitate lenders through mortgage-backed securities, the existing pool of money available for mortgages will be reduced, which will also raise the costs to subsequent mortgage borrowers.
• The irony is that in the long run the greatest beneficiary of these new laws won't be either homeowners or mortgage borrowers, but the government-sponsored enterprises, Fannie Mae and Freddie Mac.
• See, by the time Congress realizes that the net result of the legislation is a full blown mortgage availability crisis it will be time for lawmakers to step back in and expand the role of the GSE's.
• Honestly, you can't make this stuff up!

[Finster]

Re: congress will "solve" mortgage problems by creating credit crunch

...[*]U.S. lawmakers want to stem the rising number of mortgage delinquencies (good for votes) by targeting investors who finance mortgage lending through mortgage backed securities. ...

That has to be one of the worst ideas to ever come out of politics. And given its track record of bad ideas, that's saying a lot.

If things were working as they ought to, investors who finance loans to people that can't pay them back get their "punishment" in the form of losses. If we've systematized and socialized risk to the point where lenders aren't seeing losses proportionate to the risk taken, then it is that systematization and socialization that needs to be reexamined. Last thing we need is a boatload of new jobs for attorneys and bureaucrats to try and compensate for a market made dysfunctional by moral hazard, too-low interest rates and too-high inflation.

[jk]

Re: congress will "solve" mortgage problems by creating credit crunch

the neat part is that they are apparently overlooking the mortgage brokers and banks which actually wrote the mortgages.

p.s. "liquidity without responsibility" sounds like a good description for our deficit financed government. of course it's also a good description of fed policy.

[spunky]

Re: congress will "solve" mortgage problems by creating credit crunch

Privatize profit , socialize debt, what it is all about.

What about the dumbasses who bought 3x more house than they could afford or used it as a ATM ??? Guys like me, ( I will gross more this year than I paid for my house in 1997 ) are still screwed because of asset inflation. I am sitting here typing this, looking at old ,tired crop land that in 1994 I could of bought for 400$ an acre, now 3,000 $


Lets are drink some bourbon and roll nekked in our silver and gold bullion . Burl Ives rocks

[Harry Pottery]

Re: congress will "solve" mortgage problems by creating credit crunch

It seems obvious to me that if Congress really intends to respond in this manner and the availability of loans is curtailed, there is no where that housing prices can go but down--dramatically.

[Finster]

Re: congress will "solve" mortgage problems by creating credit crunch

the neat part is that they are apparently overlooking the mortgage brokers and banks which actually wrote the mortgages.

You mean the big campaign contributors? ...

[toddpw]

Re: congress will "solve" mortgage problems by creating credit crunch

I am with Finster on this one -- rushing to the rescue gets votes and lobbyist dollars, but in the real world it only slaps a band-aid over the truth. After all, why bother with a real press blackout when you can airlift liquidity to stick some more gum in the dam leak?

I've been reading Hazlitt lately, and the Fed's policies are so textbook Keynesian it's pathetic. Are the academic economists still Keynesians in spite of the beating they took in the 70's and the 80's? And when is somebody going to stand up for the legacy of Winniski and blast the Supply-siders for raping his life's work to line the pockets of the rich?

Every time the WSJ Editorial Report features Laffer gushing about how no tax is too low, I feel a little puky.

[FRED]

Re: congress will "solve" mortgage problems by creating credit crunch

the neat part is that they are apparently overlooking the mortgage brokers and banks which actually wrote the mortgages.

p.s. "liquidity without responsibility" sounds like a good description for our deficit financed government. of course it's also a good description of fed policy.

The iTulip phrase is "Debt without Responsibility" as "debt" is what is really meant by "liquidity" except "liquidity" sounds better than "debt."

I believe it's on the back of the Frankenstein Economy T-Shirt